FABM-2

nd
2 Quarter-Week 1&2

WORKSHEETS BANK
RECONCILIATION
8-9 STATEMENT
Performance Standard (PS): Solve exercises and problems involving the
following:
1. identification of the proper treatment of reconciling items in the bank
reconciliation statement
2. preparation of a bank reconciliation statement

MELC 1: 1. describe the nature of a bank reconciliation statement

(ABM_FABM12-IId- 10)
2. identify common reconciling items and describe each of them
(ABM_FABM12-IId- 11)

3. analyze the effects of the identified reconciling items

(ABM_FABM12-IId- 12)

Duration: 2 weeks (8 hours)

WHAT IS THIS WORKSHEET ALL ABOUT?

Preparation of the Bank Reconciliation Statement (BRS) would help the ABM
students to understand the basic documents and transactions related to bank
deposits and withdrawals. In this chapter, the learners will learn on how to reconcile
agency accounting records compared with the balance stated in the bank statement.
Be careful in answering the exercises and tasks by reading every given instruction.
Let’s begin!

LET’S TRY THIS! (Explore)

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Activity 8.1: Fast Learning Review

1. What will happen if there are any erasures in the check?

2. What is a bank statement and discuss the importance of a bank statement to a
depositor?
3. What is a check and who are the parties involved in the issuance of a check?
Discuss the role of each party.

Congratulations for completing the first activity. Did you

enjoy it?

Let’s Learn

Now you will be learning the purpose of preparing a

Bank Reconciliation Statement and how it is being
done. Study the inputs given and be ready to
complete different activities that will test your
knowledge and understanding as you go through the
lesson.

LECTURE

BANK RECONCILIATION STATEMENT

Nature of Bank Reconciliation Statement

It is normal for a company's bank balance as per accounting records to

differ from the balance as per bank statement. The difference between
these figures is the reasons why companies prepare a bank reconciliation
statement. Bank reconciliation statement is a report which compares the
bank balance as per company's accounting records with the balance
stated in the bank statement.

The two common causes of the discrepancy in figures are:

• Time lags that prevent one of the parties (company or the bank) from

recording the transaction in the same period as the other party.

Example: A bank statement that ends January 30, 2015 and then the
company were able to collect cash of P20,000 at 5:00 PM. Bank
usually closes at 3:00 PM because of this, the cash collected will not
be reflected in the bank as deposit but it is however recorded in

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 accounting records of the company.

• Errors by either party in recording transactions

Example: A check was issued to Meralco by the company amounting to
P1000. The company recorded this as P100. When the check was
presented, the bank paid Meralco P1,000. In the records of the company
it was P100 while in the records of the bank it’s P1,000. There is in this
case an error that will cause the difference between the company’s
records and the bank records.

The importance of Bank Reconciliations are as follows:

• Preparation of bank reconciliation helps in the identification of errors in the

accounting records of the company or the bank.

• Cash is the most vulnerable asset of an entity. Bank reconciliations

provide the necessary control mechanism to help protect the valuable
resource through uncovering irregularities such as unauthorized bank
withdrawals. However, in order for the control process to work effectively,
it is necessary to segregate the duties of persons responsible for
accounting and authorizing of bank transactions and those responsible for
preparing and monitoring bank reconciliation statements.

• If the bank balance appearing in the accounting records can be

confirmed to be correct by comparing it with the bank statement
balance, it provides added comfort that the bank transactions have
been recorded correctly in the company records.

Monthly preparation of bank reconciliation assists in the regular monitoring of cash

flows of a business.
Unadjusted Book Balance xxxxx Unadjusted Bank Balance xxxx

Deposit in Transit xxxx

Bank Debit Memo Outstanding Checks xxxx

NSF Check xxxxx

Printing Charge xxxxx

Bank Credit Memo

Collection xxxxx

Errors xxxxx

Adjusted Book Balance xxxxx Adjusted Bank Balance xxxxxx

There are three methods of preparing bank reconciliation statement, namely:

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 a. Adjusted Method wherein the balances per bank and per book are
separately determined.
b. Book to Bank Method wherein the book balance is adjusted to agree with
the bank balance.
c. Bank to Book Method wherein the bank balance is adjusted to agree with
book balance.

The most common format of a bank reconciliation statement is shown below:

Juan Dela Cruz Company

Bank Reconciliation Statement
April 30, 20xx

The key terms to be aware of when dealing with a bank reconciliation are:

• Deposits in transit are amounts already received and recorded by the

company, but are not yet recorded by the bank.
For example, a retail store deposits its cash receipts of August 31 into the
bank's night depository at 10:00 p.m. on August 31. The bank will process
this deposit on the morning of September 1.
As of August 31 (the bank statement date) this is a deposit in transit.

Because deposits in transit are already included in the company's Cash

account, there is no need to adjust the company's records. However,
deposits in transit are not yet on the bank statement. Therefore, they need
to be listed on the bank reconciliation as an increase to the balance per
bank in order to report the true amount of cash.

A deposit in transit is on the company's books, but it isn't on the bank

statement.

• Outstanding checks are checks that have been written and recorded in
the company's Cash account but have not yet cleared the bank account
or presented to the bank by the payee.

Checks written during the last few days of the month plus a few
older checks are likely to be among the outstanding checks.

Because all checks that have been written are immediately recorded in the
company's Cash account, there is no need to adjust the company's records
for the outstanding checks. However, the outstanding checks have not yet
reached the bank and the bank statement. Therefore, outstanding checks
are listed on the bank reconciliation as a decrease in the balance per bank.

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 Illustration of an Outstanding Check: On January 29, 2015, Juan issued
a check to Maria amounting to P2,000. The checks was then recorded by
Juan in his books as a deduction to his cash. It so happen that the bank was
closed on that day and Maria was able to visit the bank and have it encashed
on February 1, 2015 only. In the bank statement received by Juan from his
bank ending January30,2015, the P2,000 check was not deducted however it
was already deducted in the books of Juan on January 29, 2015. The P2,000
check is called an outstanding check.

• Bank errors are mistakes made by the bank. Bank errors could include the
bank recording an incorrect amount, entering an amount that does not
belong on a company's bank statement, or omitting an amount from a
company's bank statement.

The company should notify the bank of its errors. Depending on the error, the
correction
could increase or decrease the balance shown on the bank statement.

Since the company did not make the error, the company's records are not
changed.
• Bank service charges are fees deducted from the bank
statement for the bank's processing of the checking account
activity
Examples:
-
accepting deposits,
-
posting checks,
-
mailing the bank statement,
• Other types of bank service charges include the fee charged when a
company overdraws its checking account and the bank fee for processing
a stop payment order on a company's check.

• The bank might deduct these charges or fees on the bank statement
without notifying the company. When that occurs, the company usually
learns of the amounts only after receiving its bank statement.

• Because the bank service charges have already been deducted on the
bank statement, there is no adjustment to the balance per bank. However,
the service charges will have to be entered as an adjustment to the
company's books. The company's Cash account will need to be decreased
by the amount of the service charges.

• NSF check is a check that was not honored by the bank of the person or
company writing the check because that account did not have a sufficient
balance. As a result, the check is returned without being honored or paid.

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 NSF is the acronym for not sufficient funds. When the NSF check
comes back to the bank in which it was deposited, the bank will
decrease the checking account of the company that had deposited the
check. The amount charged will be the amount of the check plus a bank
fee.

Because the NSF check and the related bank fee have already been
deducted on the bank statement, there is no need to adjust the balance
per the bank. However, if the company has not yet decreased its Cash
account balance for the returned check and the bank fee, the company
must decrease the balance per books in order to reconcile.

• Check printing charges occur when a company arranges for its

bank to handle the reordering of its checks. The cost of the printed
checks will automatically be deducted from the company's checking
account.

Because the check printing charges have already been deducted on the
bank statement, there is no adjustment to the balance per bank. However,
the check printing charges need to be an adjustment on the company's
books. They will be a deduction to the company's Cash account.

• Interest earned will appear on the bank statement when a bank gives a
company interest on its account balances. The amount is added to the
checking account balance and is automatically on the bank statement.
Hence there is no need to adjust the balance per the bank statement.
However, the amount of interest earned will increase the balance in the
company's Cash account on its books.

• Notes Receivable are assets of a company. When notes come due, the
company might ask its bank to collect the notes receivable. For this
service the bank will charge a fee. The bank will increase the company's
checking account for the amount it collected (principal and interest) and
will decrease the account by the collection fee it charges. Since these
amounts are already on the bank statement, the company must be
certain that the amounts appear on the company's books in its Cash
account.

• Errors in the company's Cash account result from the company entering
an incorrect amount, entering a transaction that does not belong in the
account, or omitting a transaction that should be in the account. Since the
company made these errors, the correction of the error will be either an
increase or a decrease to the balance in the Cash account on the

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 company's books.

2. The Bank Reconciliation Process

Step 1. Adjusting the Balance per Bank
The first step is to adjust the balance on the bank statement to the true,
adjusted, or corrected balance. The items necessary for this step are listed in
the following schedule:

Step 2. Adjusting the Balance per Books

The second step of the bank reconciliation is to adjust the balance in the
company's Cash account so that it is the true, adjusted, or corrected balance.
Examples of the items involved are shown in the following schedule:

Step 3. Comparing the Adjusted Balances

After adjusting the balance per bank (Step 1) and after adjusting the balance
per books (Step 2), the two adjusted amounts should be equal. If they are not
equal, you must repeat the process until the balances are identical. The
balances should be the true, correct amount of cash as of the date of the bank

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 reconciliation. The adjusted cash balance will appear as the Cash in Bank in the
Statement of Financial Position (Balance Sheet).

LET’S SEE WHAT YOU HAVE LEARNED (APPLY)

Note: This is the evaluation and application of learning.
Problem No. 8.2

For the month of May 2016, Sta. Fe Company issued the following checks as
recorded in its Cash Disbursement Journal:

Check Date Check No Payee Amount

5/2/2016 1256 Jane 2,000

5/10/2016 1257 May 300

5/15/2016 1528 Nicole 4,500

5/18/2016 1259 Kathy 8,700

5/30/2016 1260 Perry 1,200

As per the bank statement received by Sta. Fe, the following checks were
presented and paid by the bank:

Check No Payee Amount

1256 Jane 2,000

1259 Kathy 8,700

1260 Perry 1,200

Instruction: Identify checks outstanding as of end of May 2016

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Problem No. 8.3:

The bank statement for Sta. Fe Company shows a balance per bank of
P15,907.45 on April 30,2015. On this date the balance of cash per books is
P11,589.45.

Additional information is provided below:

Deposits in transit: April 30 deposit (received by the bank on May 1)
P2,201.40
Outstanding checks: No. 453-P3,000.00
No. 457-P1,401.30
No. 460-P1,502.70
Errors: Sta. Fe wrote check no. 443 for P1,226.00 and the bank correctly paid
that
amount. However, he recorded the check as P1,262.00.

Bank memoranda:
Debit– NSF check from Pedro P425.60 .
Debit– Charge for printing company checks P30.00
Credit – Collection of note receivable for P1,000 plus interest earned of
P50, less bank collection fee of P15.00.

Required:

Prepare a bank reconciliation statement using the adjusted method.

Hint: Bank Debit Memo are deductions made by the bank to the account of the depositor
Bank Credit Memo are additions made by the bank to the account of the depositor

-end-